European provisions on VAT grouping
EU law1 provides that member states may treat as a single taxable person persons established in the territory of a country who, while legally independent, are closely bound to one another by financial, economic and organisational links. This provision is incorporated into UK legislation by VATA 1994, ss 43–44.
Domestic legislation providing for group treatment must have been subjected to the European VAT Committee2. Whilst the Committee does not appear to have any powers to authorise or prohibit such legislation, failure to consult the Committee means that the legislation is in breach of the procedural requirements of Directive 2006/112/EC (see, for example, Ampliscientifica Srl & Amplifin SpA3). Consequently the legislation may be ultra vires (see Stradasfalti Sri4).
A proposal5 by the European Commission in 2009 suggested that the rules regarding group registration should be tightened to ensure similar treatment in all member states. Most of the elements of the proposal already exist in UK legislation, although some of the proposed conditions would limit the scope for, and benefit of, VAT grouping. The Commission suggested that:
• only taxable persons should be eligible to be members of a VAT group
• only businesses with their seat of economic activity or fixed establishments of such businesses or of foreign businesses, physically present in the territory of the member state that has introduced the VAT grouping scheme, should be eligible to be members of a VAT group
• if a taxable